John Phelps & Co. v. Farmers' & Merchants' Bank

2 McGl. 11

• Court: Louisiana Court of Appeal
• Decided: July 1, 1884
• Docket: No. 150
• Status: Published

Opinions

Rogers, J.

MeCuistion, Jr., drew a draft dated April 21,1880, at Paris, Texas, on John Phelps & Co,, in favor of the Farmers’ and Merchants’ Bank, payable at sight, for $750 — and said draft was indorsed by said Bank. Attached to the draft was a bill of lading for nineteen bales of cotton, purporting to have been issued by the Texas and Pacific Railroad Company. The cotton was consigned in the bill of lading to the order of the Farmers’ and Merchants’ Bank, and the bill of lading was indorsed by said Bank, and forwarded, together with the draft, to their agent here, the State National Bank, who presented both the bill of exchange and the bill of lading at the office of John Phelps & Co., who paid the bill of exchange on the faith of the bill of lading so indorsed. Subsequently, it was discovered that no such bill of lading had been issued by the railroad company, and that the instrument purporting to be a good bill of lading was á forgery, John Phelps & Co. at once demanded that the amount paid by them, as they allege, on the faith of the bill of lading indorsed by said Bank, be refunded, which the State National Bank, as agent of the Farmers and Merchants’ Bank, refused to do.

MeCuiston was a correspondent of plaintiffs, and had had several transactions with them relative to the shipment of coiton and drawing of drafts. This appears from the following statement, which we find in the record:

Statement of Drafts draivn by M. H. McCuiston, Jr., on and paid by John Phelps & Co.

1880,

Mch. 11. To draft to Farmers’ and Merchants’ Bank against 41 bales cotton, with bill lading attached....................,.......$2410 00

do 13, do 21 bales cotton, with'bill lading attached. 1212 03

do 19. do 38 do do do do . 2100 00

Apr. 22. do 15 do do do do . 700 00

do 24. do 19 do dc do do . 750 00

do 27. do order, . 200 00

E. & O. E. 134 bales cotton.........................$7372 48

New Obleans, Nov. 9,1880.

The draft which is entered in the foregoing account on April 24, against 19 bales of cotton, for $750, is the one to which Mc-Cuiston attached the forged bill of lading. The draft was genuine, but the bill of lading was a forgery.

The Farmers’ and Merchants’ Bank in Paris, Texas, it is ad* Knitted, discounted the draft with the bill of lading annexed, in good faith, in the usual course of banking business, in the honest belief that it was genuine, and paid the full amount for the same, less the customary discount.

The letter written by McCuiston to the plaintiffs, advising them of this draft and shipment of 19 bales of cotton, reads as follows:

“ Blossom Pbaibie, Texas, April, 1880.

“ Messrs. John Phelps & Co., New Orleans:

“ Gentlemen — I have to-day received acc’t sales 61 bales sunk cotton, netting $3584.36. Have to-day sent you 19 B. C. of pretty cotton, all good, and drew a draft against it favor F. & M. Bank for $750. I also drew one favor Star Gales for $200. Will send more cotton Friday, enough at least to keep my margins ahead. Write me your views on the market. Have great confidence in your (Phelps’) judgment or cotton sense.

“ With kind regards,

“ M. H. McCuiston, Jb.,

“ Successor to McCuiston & Lambert.”

That this letter was received there is no dispute; the record shows it was answered on April 29th.

The draft was in the usual form. The bill of lading attached to the draft was in these words:

“ Paris Station, April 20,1880.

Received from M. H. McCuiston, Jr., to be shipped to Shreveport, La. — 19 B. C. R. Warms,

Marked Agent Texas and Pacific Railway Co.

H. M.

Consigned to — order

Farmers’ <fc Merchants’ Bk.

Notify John Phelps «fe Co.

New Orleans, La.

19 B. C.

The indorsement was: “ Pay State Nat’l Bank of N. O. or order, for collection on account of Farmers’ <fc Merchants’ Bank, Paris, Texas. C. W. Hertz, Cashier.”

On the 24th of April, 1880, the State National Bank of New Orleans presented the draft, with bill lading attached, to John Phelps <fc Co., who paid it without objection.

The present suit was brought on the 4th of June, 1880, and-then it is admitted McCuiston had absconded and now is utterly worthless.

Plaintiffs, in whose favor judgment was rendered in the lower court, say:

“ On the trial, in the lower court, of the suit brought to recover the money thus paid by John Phelps <fc Co., the vital question was, what is the effect of an indorsement of a bill of lading, made negotiable by the laws of this State, as regards the liability of the indorser? Section 2485, Revised Statutes, declares ‘ that all bills of lading * * shall be negotiable by indorsement in blank, or by special indorsement in the same manner and to the same extent as bills of exchange and promissory notes.’ It is, therefore, contended that an indorsement of a bill of lading carries with it the liability attendant upoij the indorsement of other negotiable instruments.”

The defendants contend that the plaintiffs cannot compel them to refund the amount of the draft so paid, in view of the following legal considerations:

I. Commercial questions of this character, to-wit: whether a bill of lading is a negotiable instrument and the extent of the liability of an endorser thereof, is determined by the lex mercataría, or law merchant, under which it is perfectly clear the defendants would not be liable as endorsers of this bill of lading. Shaw vs. Railroad Co., 11 Otto, 562 et seq.; Hoffman vs. Bank of Milwaukee, 12 Wall. 181 et seq.; 91 U. S. p. 94; 42 Eng. Common Law, 63 et seq.; 15 Penn. Stat. 238.

II. The principles of the lex mercatoria or law merchant prevail in Louisiana and Texas and every other State of the Union, unless modified specially by statute.

In 1 La. An. 325-326, Mr. Justice Slidell, in deciding tne case of Bradford vs. Cooper, said: “ It is a fact of which we deem it our duty to take judicial notice, that the law merchant prevails throughout the States of this Union, except so far as the same may be modified in particular States by statute.” See also 4 La. An. 206, 210.

III. The only chance, therefore, for plaintiffs to recover in this suit is for them to show affirmatively a statute by which the principles of the law merchant have been so modified; and in considering such statute, all courts are governed by the following rule laid down by the Supreme Court of the United States:

“ No statute is to be construed as altering the common law further than its words import: It is not to be construed as making any innovation' upon the common law which it does not fairly express. Especially so great an innovation as would be placing bills of lading on the same footing in all respects with bills of exchange, not to be inferred from words that can be fully satisfied without it.” 11 Otto, p. 565; 12 Wallace, p. 190.

IV. Section 2485 of the Revised Statutes of Louisiana is similar to like statutes passed on the same subject by the States of Missouri and Pennsylvania, which have been construed by the Supreme Court of the United States, and the interpretation so given is applicable here, and must preclude the plaintiffs’ recovery.” See Shaw vs. Railroad Company, 11 Otto, 562-565; see also, 12 Wall. p. 190.

Two other points are made which we do not consider necessary to the determination of the case.

Plaintiffs-reply:

“ If the authorities cited by defendants were the common law, the law of Louisiana would determine the question of liability at once. These authorities, however, though good law, are inapplicable-to the case at issue, because in England and in many States in the United States,the law merchant has not been changed by statute. Daniels on Negotiable Instruments, Vol. II, pp. 621, 623, says that, though bills of lading are generally classed among negotiable instruments, and are frequently spoken of as negotiable, that it is more correct to call them ‘ quasi negotiable, since they are like rather than op themand on p. 623 he says: ‘ It will be seen that their peculiar properties (refering to transfer by indorsement) are attributable rather to a liberal application of the doctrine of equitable estoppel for the benefit of trade, than to any custom or statute which placed them upon the footing of negotiable instruments, for both of these sources of negotiability are wanting.’ Such being the common law doctrine, necessarily an indorsement of a bill of lading in England, where there has been no statutory modification, does not carry with it the liability assumed by an indorser of a negotiable instrument. Therefore, the cases of Leather vs. Simpson, L. R. 11 Eq. 401, and Robinson vs. Reynolds, 42 E. C. L. 634, though parallel cases as far as the facts are concerned, do not apply to the case at issue, because by statute we have clothed bills of lading with all the attributes of negotiable instruments, something unknown to the common law. The Pennsylvania cases cited are equally inapplicable for the same reason, that we must presume the common law to be the law governing those cases, without evidence to the contrary. The case of Shaw vs. Railroad, 101 U. S. 557, is cited, as the expression of the highest tribunal on the question of the liability arising out of the indorsement of a forged bill of lading. In this case, the statutes of Pennsylvania and Missouri were both regarded by the Court in order to determine the question. The statute of Pennsylvania simply says: ‘ Bills of lading shall be negotiable and may be transferred by indorsement and delivery while Missouri has enacted that ‘ they shall be negotiable by written indorsement thereon and delivery in the same manner as bills of exchange and promissory notes,’ and the Court most properly says : ‘No statute is to be construed as making any innovation upon the common law which it does not fairly express, nor altering the common law further than its words import.’ * * * ‘ It cannot be, therefore, that the statute which made them (bills of lading! negotiable in the same manner as bills of exchange, intended making them so in all respects.’ But our statute expressly says not only in the same manner, but also to the same extent, that is to say ‘ in all respects.’ No interpretation can be placed upon the words ‘same extent,’ if they do not mean, that to the same extent that bills of exchange and promissory notes are negotiable, with all the resulting effects, so also hereafter, shall be bills of lading. The rule laid down in Platt vs. R. R. Co., 99 U. S. pp. 58 and 59 is, that in putting a construction upon a statute it must be expounded so as to give effect to every part of it, and when a given construction would make a word redundant, it was reason for rejecting such construction; hence, some further interpretation must be put upon the expression ‘ and to the same extent,’ made use of in Section 2485, Revised Statutes, relative to the negotiability of bills of lading/’

We have availed durselves of the labors of the learned counsel who have prosecuted and defended this cause, and have quoted at length from their statements of fact (which we find in all particulars sustained by the record), and their arguments. The questions submitted are of interest from their relation to commercial conduct and as involving a construction of a statute of the State, upon which no determination has been had by our highest Court.

Bills of lading and promissory notes have well and accepted definitions, their relations with affairs are regulated and ordained by law, and their uses and force imbedded into the commercial condition of this country and all commercial countries.

The former are representative of the property described by them. “ Symbolical of the property it describes,” is a quotation most apt in its expression. A promissory note is an unqualified, unconditional promise to pay a certain sum at a certain time.

A bill of lading, therefore, like the property it represents, may be transferred independent of the question of negotiability. The law merchant has, however, out of the necessities of trade and enlightened dealings between men and nations, adopted a usage in regard to such transfers, that has overcome law. Since Twyne’s Case, 1 Smith L. C. 1, it was held that any transfer of property without actual delivery was a fraud; even where good faith existed; from the inconveniences and difficulties attending mercantile enterprises when delivery had to be actually made at the moment of transfer, transactions were virtually destroyed; custom gave to certain evidences of contract, e. g., bills of lading, that effect which is defined so accurately in the quotations from Daniels, and by counsel for plaintiff, “ quasi negotiable, since they are rather like than of them.” Daniels on Negotiable Instruments, Vol. II, p. 621.

Hence, bills of lading are transferrable without endorsement. 4 Comst. 497; 9 Barr, 475, and authorities cited; 7 Reporter, 275, and also 31 La. An. 846, Chopin vs. Clark, as an examination of the facts will show.

Take the opinion of the Court in Holmes vs. German Society Bank, 7 Reporter, 275: “ The bill of lading was attached to the draft as a security for its payment. It was, therefore, evidence of an appropriation of the proceeds of sale of the property contained in the bill of lading, whether the bill was endorsed or not.”

The law merchant is a part of the law of Louisiana, (Thompson vs. Mylne, 4 La. An. 200) and as interpreted by the Courts in other States, will be adopted in this, except when modified by statute. The Act of 1868, No. 150, p. 193, was enacted after the establishment of this principle, and we must .construe it, therefore, by the light of what had been decided by the Courts.

An examination of the entire statute must convince, that the objeots of the various sections were in aid of the already universally recognized rules and to throw around these peculiar engagements of commerce the sanction of the law, to punish illegal practices, and to determine the means of facilitating enterprises through a species of transaction, entering so largely into commercial pursuits as bills of lading, cotton press, warehouse and shipping receipts, and all these forms of dealing are made negotiable, (just as bills of lading), Sec. 2485, Revised Statutes, by indorsement in the “ same manner and to the same extent as promissory notes.” None of these, however, are promissory notes, nor have they relation to money, except as representing a claim in or to money as property, or to property which, of course has a moneyed value. In the enactment of the statute, the State performed a duty which required that safeguards should be thrown around thpse matters and to impose such conditions as the public interest required. It, the statute, does not profess to give a more extended importance to such documents than already obtained in the mercantile world; nor does it make either of them a bill of exóhange or a promissory note. Every bill of exchange, every promissory note, is not negotiable, and there are conditions imposed upon the instruments under consideration, by the statute, which would at once destroy those rights which result from title, in a negotiable promissory' note. Bills of lading, under the statutes of this State, are, with or without endorsement, nothing but the symbol of property, and their delivery is made the evidence of appropriation or as decided in 29 Maine, 419, “ by indorsement they pass title to the indorsee;” there- is no warranty expressed, nor can any be implied. It is not a sale.

In Bank of Syracuse vs. Armstrong, 7 Reporter, 657, the Supreme Court of Minnesota held, that “ a promise, in the form of a promissory note, in a contract of sale of a reaper, the sale to be absolute in the payment of the note, was not an obligation entitled to the privileges of a negotiable instrument.”

As'decided, such an instrument had none of the requisites of a note. “ It was not an independent, absolute, unconditional promise for the payment of a precise and definite sum of money in all events, and without any contingency, as is essential to the validity of commercial paper.”

The same may be said of a bill of lading, and it will not be contended, because the legislature proposes to apply to it a commercial usage, and permitting to arise therefrom a character of negotiability, one of the consequences, not one of the attributes of a promissory note, that it thereby becomes a promissory note.

Would it (bill of lading) not, like the promise referred to in the case just cited, be an obligation of a “character altogether too uncertain to serve the purpose of commercial paper as the representative of money in business transactions? ” It comes into the hands of every holder, with notice of the existence of a condition that may result in defeating any recovery upon it and, therefore, cannot have accorded to it the privileges attaching to that kind (negotiable) of paper.”

These conditions are evident from the nature of the contract, which is but an acknowledgment by the carrier of the reception of the goods and an obligation to deliver them in safety at the port of discharge; and these conditions are expressed in the body of the instrument.

There is virtually no difference between the statute of Missouri and that of Louisiana by the insertion of the additional words, to the “same extent,” in our statute. Nor can we agree that these words should be construed to mean “in all respects.” To say, that by an indorsement of a bill of lading it is thereby negotiable “ in all respects ” as a promissory note, this Court would make an instrument entirely inconsistent with the statute and at variance with every established principle of usage and law, as applied to negotiable paper.

The reason of the statutes of Pennsylvania, Missouri and Louisiana is evident.

The transfer of the bill of lading by indorsement to indorsee, while it appropriates the property or the proceeds, does not vest absolute title, nor does it necessarily vest more than an equitable claim to a portion of the goods, or give a pledge or lien for the payment of the advance or draft attached to which, as security, is the bill of lading. Kinne’s Law Com., page 226, Vol. II, and authorities there cited i Sec. 2482, Rev. La. Stat.

The principle established in Canard vs. Atlantic Insurance Co., 1 Peters, 445, was:

“ Strictly speaking, no person but the consignee can, by any indorsement in the bill of lading, pass the legal title to the goods. But if the shipper be the owner, and the shipment be on his own account and risk, although he may not pass the title by virtue of a mere indorsement of the bill of lading, unless he be the consignee, or the goods be delivered to his order; yet by assignment on the bill of lading, or by a separate instrument, he can pass the legal title to the same; and it will be good against all persons except purchasers, for a valuable consideration, without notice, by indorsement on the bill itself.”

It was eminently proper, therefore, to enact such laws as would give some substantial effect to the transfers of these necessary instruments of commerce and, as far as possible and consistent with their character, make them negotiable in “ the same manner and to the same extent ” as promissory notes are negotiable — - indorsement — delivery—the right to sue on the contract — for. example ; avoiding thereby the questions of assignment and conflicting title suggested in the opinion in Canard vs. Atlantic Ins. C'.Just quoted,and the actual delivery of the goods themselves,* but to apply the statute of this State so that an indorsement of a bill of lading carries with it the liability attendant upon the indorsement of other negotiable instruments, would be contrary to a just and proper interpretation.

We have so far considered the general effect of the negotiability of bills of lading by indorsement. Turning to the case before us, we find that McCuiston purported to ship nineteen bales of cotton to John Phelps & Co. For these nineteen bales of cotton he received a bill of lading; this bill of lading he attached to a draft for $750, drawn or- John Phelps & Co., who were to receive this cotton for account of McCuiston, their correspondent; this bill of lading was not indorsed by McCuiston, but was delivered to defendants with the draft, as a security for the sum advanced, and such delivery and possession was sufficient to operate as an appropriation of the property or proceeds resulting from its sale; 25 Ohio Stat. 360; 14 N. Y. 497; 44 N. Y. 136.

The draft was genuine; the bill of lading proved to be a forgery. No question of bad faith or improper practices arise. Defendants indorse for collection to the State National Bank of this City, the draft and the bilLof lading, and on presentation plaintiffs pay and receive from the State National Bank the draft and the security or bill stamped by the State Bank “paid.” This delivery to plaintifls of the bill of lading, without any other form or question, at once gave them the right to demand, receive and, if necessary, in their own name, sue for these goods; a right arising at once from the payment of the draft and the possession of the bill of lading. If the statute intended to hold an endorser of a bill of lading or shipping receipt responsible, “in all respects,” as it would an endorser on a promissory note or bill, it would certainly have provided in some positive manner for so great a change in the destination of mercantile instruments.

Sec. 2482, Rev. Stat,, says: “ * * any bill of lading, etc., * * may be transferred by indorsement thereop, and any person to whom the same may be transferred shall be deemed and taken to be the owner of the goods, etc. * * So far as to give validity to any pledge, lien or transfer made or created, etc. * * No property shall be delivered, except in surrender and cancellation of the original receipt, bill of lading, etc. * * ”

Thus is described the negotiability of bills of lading, and as thus provided, they are negotiable, undoubtedly* “ in the same manner and to the same extent as bills of exchange and promissory notes; ” but their character, as symbols of property, remains,

The decision in Shaw vs. Railroad Co., 101 U. S., page 565, is exhaustive, and there is no reason why it should not prevail as authority in Louisiana.

It is the construction of statutes, similar to the one existing here, by the highest tribunal in the land.

Say the Court:

“ They (bills of lading) are in commerce a very different thing from bills of exchange and promissory notes, answering a different purpose and performing different functions. It cannot be, therefore, that the statute which made them negotiable by indorsement and delivery, or negotiable in the same manner as bills of exchange and promissory notes are negotiable, intended to change totally their character, put them, in all respects, on the footing of instruments which are the representatives of money, and charge the negotiation of them with all the consequences which usually follow the negotiation of bills and notes. Some of these consequences would be very strange, if not impossible. Such as the LIABILITY OF INDORSERS, ETC.”

This view is conclusive of this case and its citation as authority sufficient, but justice to the counsel and the questions urged by them required the examination given.

Judgment reversed and judgment in favor of defendants with costs in both courts.